Councilman leads charge on loan reform

Three years after the Virginia General Assembly issued mandates restricting short-term, high-interest loans, new bills to further regulate the industry are proposed for the upcoming legislative session.

Bills prefiled by Sen. Mamie Locke and Del. Glenn Oder seek to cap at 36 percent the annual interest rate that payday, car title and open-end line of credit lenders can charge.

Leading the fight against “predatory” lending is Staunton City Councilman Bruce Elder, who inspired a grassroots statewide initiative that brought the issue to lawmakers’ attention in 2007.

Efforts that year to pass reforms died when negotiations broke off between industry representatives, consumer advocates and the governor in the session’s final hours.

In 2008, some restrictions were passed, but not the 36 percent ceiling sought by Elder and others.

Those who stood behind Elder’s efforts three years ago are again showing their support.

Since the Staunton City Council passed a resolution supporting the 36 percent cap in June, 65 cities, towns and counties have done the same, including Augusta County. Elder has also presented to the Waynesboro City Council.

The Virginia Municipal League and Virginia Association of Counties support the limit, as do the Virginia Interfaith Center for Public Policy and AARP Virginia.

But industry representatives said such a ceiling would drive lenders out of business.

“They might as well call it the ‘Eliminate Payday Loans Act,’ ” said Jamie Fulmer, spokesman for Advance America.

Based in Spartanburg, S.C., the company operates dozens of short-term loan centers throughout the state.

If passed, the legislation would prohibit lenders from charging more than $1.38 for each $100, two-week loan.

“We can’t afford to offer loans for less than 10 cents per day and meet our overhead costs,” Fulmer said.

Many payday lenders charge $25 to borrow $100 for two weeks, which is equal to an annual percentage rate of 688.

“It’s hard to imagine, in a time when home mortgage rates are 6 to 8 percent and car loans are 4 to 8 percent, that these places need to make 200 to 600 percent interest to stay alive,” said Elder.

The high interest loans are designed to trap borrowers in a cycle of debt, said Dana Wiggins, coordinator for the Virginia Poverty Law Center.

“If the interest charged was less, it would be easier for people to pay back the loans and I wouldn’t have to run a hotline for people who have lost homes or gone into bankruptcy because of these loans,” she said. “People can be stuck in these loans for years paying interest but not tackling the principal.”

Dathan Young of Blue Ridge Legal Services said he’s also witnessed devastation brought on clients by short-term, high-interest loans.

“Indigent borrowers often lose their cars when a car is involved, which is their only method of transportation to work,” he said.

Fulmer said the risks involved with payday loans are not unlike those involved with other types of lending.

“Anytime a consumer uses any kind of credit they have to be careful,” he said. “Not unlike any other type of credit, consumers can get into a situation where they’re used irresponsibly.”

Wiggins said the 2008 restrictions have helped temper the damage caused by payday and car title loans.

The regulations allow customers to take out only one such loan at a time. Borrowers must be allowed extra time to pay off loans, an additional week for borrowers paid weekly, two weeks for borrowers paid every two weeks and two months for those who receive Social Security or other forms of monthly income. Maximum annual percent rates on loans were also reduced to 391 percent.

“The 2008 legislation wasn’t perfect,” Wiggins said. “Many of us were disappointed, but in retrospect it did some things to take down the number of payday lenders and the number of these types of loans has gone down.”

Still, Wiggins said some lenders have evaded the restrictions by offering open-end credit loans to which they don’t apply.

Elder said he hopes the upcoming legislative session will bring “true reform,” which the general assembly failed to accomplish in 2008.

“This type of product destroys a person’s credit and destroys them financially,” he said. “And it happens very quickly. At the heart of many bankruptcy filings is a predatory loan.”

Several states, including neighboring Maryland, as well as Washington D.C., have placed caps on short-term loans.

“When we achieve a 36 percent cap, we’ll have won the battle here,” Elder said.